Enterprise Opportunity Management and ERM

 

The word risk can be traced to the Classical Antiquity in reference to a hazard to avoid in the sea (like an exposed rock or a barrier). Deriving from the Greek rhiza and the Latin risicum, we inhered the English words for both, cliff and risk, the Spanish risco and riesgo, and the French récif and risqué. It seems that Occident defined a risk with a meaning of danger and chance… usually with a negative outcome. However, the word rizq in the Arabic world means the blessing that has been given by God to make profit from. In this post, I would like to use the Arabic meaning of rizq in ERM.

A research done by Robert Ciardini concluded that most people would rather avoid a loss than receive a benefit. I think that this tendency gave the ERM approach to the uncertainties that might have negative impact rather than positive. From this perspective, risk management means a defensive tactic.

The same system that ERM uses to indentify, treat and report risks can be used to collect business insights about opportunities. This assessment process should not be limited to threats with negative impact. At the end, changing business environments create both risks and opportunities to innovate. The real value of this process is to anticipate opportunities. Opportunities indentified by top management should be communicated, validated and treated by all the employees across the organization (top-down), as well as employees should be able to communicate their ideas for innovation to the top management (bottom-up). Employees should be able to see market opportunities and transform them into realistic ideas, as they see risks to develop a specific mitigation strategy in a traditional ERM approach. Companies need to expose their employees to entrepreneurship and to understand the commercial dimension of new ideas.

The Enterprise Opportunity Management (EOM) approach may cover the following opportunities categories (as complement to risk categories):

1- Opportunities to create a new process or product.
2- Opportunities to improve existing processes or products.
3- Opportunities to broaden the range of products or services (geography, target).
4- Opportunities to use excess resources.
5- Opportunities generated from declined customer orders and requests.
6- Opportunities to cut costs.
7- Opportunities to improve the corporate image and reputation.
8- Opportunities to improve the HS&E standards.
9- Opportunities to build alliances.

Several of these categories can be related to a risk category (eg. the reputational risk is linked to opportunities to improve the corporate image). However, they are not limited to have negative impact. As well as in ERM, both historical and projected data may be used to detect patterns and tendencies.

An EOM Matrix can be used to prioritize all the collected opportunities from the assessments. This matrix can be an additional guidance in the strategy decision-making (as well as ERM). Even the assessment can be treated in more detail; the opportunity score can be calculated by multiplying the expected gain by the likelihood to succeed (both in a given range). High reward opportunities with high chances to succeed (in other words, involving low risks) are ranked high.

An EOM matrix would be displayed as follows (in a cold map);

In EOM, we can talk of an opportunity appetite (as complement of a risk appetite), as well as, a culture for innovation and entrepreneurship (as complement of a risk culture).

An opportunity is the opposite of a threat. Then, risk is a balance between the benefits and harms of an event and the probability of those benefits and harms. Both ERM and EOM should be part of a business model to guarantee that the enjoyment to create something that does not exist should overcome the fear of failure.


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